Everyone in business has heard the expression that if you’re not disrupting your market, someone else will soon be disrupting you. But this raw challenge doesn’t help most leaders understand how they’re supposed to get started in the creative-destruction business.

But Steven Stein has figured it out. The chief executive officer of Toronto-based Multi-Health Systems Inc. has created an in-house “hackathon” to encourage innovative thinking and transform ideas into new products.

Stein is a true believer in creative destruction. He founded MHS 33 years ago to disrupt the psychological-testing industry by automating conventional paper-based tests for the personal computer. Today, MHS is a global industry leader, with 160 employees and clients in more than 75 countries. But Stein knows his company remains vulnerable to new entrepreneurs with better ideas – so he’s shaking up his team to ensure they develop those bold new products first.

It was an off-site strategy session for senior leaders that launched MHS’s innovation project. “Two years back, we had a presentation on disruption,” Stein said. “We went home and had nightmares about how new people could kick us out of the market.”

Stein and his team knew hackathons were popular, if sometimes messy, events that help small teams turn new ideas into working prototypes fast. Even when they don’t produce new products, hackathons can be powerful problem-solving exercises that can build positive attributes such as agility, risk tolerance and trust. So Stein appointed a team, led by president Hazel Wheldon, in the summer of 2015 to put MHS on the hackathon circuit – and make it fun and engaging.

Since then, MHS has held two hackathons at its Toronto headquarters, and created a five-person “innovation hub” to select the best ideas and turn them into customer-ready products. Innovation is a long game, and the first market tests are still in the field. But Stein believes the process has already been successful. “The biggest benefit is the excitement it created,” he said. “People loved working with new people. It’s been worth it just for the engagement, not just the products we got out of it.”

Could your company pull off a similar innovation coup? Here’s how MHS did it.

After researching how other companies managed innovation events, MHS’s hackathon planners developed guidelines and rules. They decided on a one-day hackathon on a January Monday – with the 15 teams competing in a “Demo Day” the following Friday, in conjunction with MHS’s annual awards dinner.

Teams formed in groups of five to eight in early fall, so they would have lots of time to develop ideas and research solutions prior to the big day. To help the teams focus, planners identified four sectors as most likely to be disrupted: big data; mobile apps; gamification; and process improvement.

As the employee teams took shape (each one restricted to one programmer and one employee from user experience), the planners scheduled a series of “lunch and learns” through the fall. Topics included creating prototypes, writing business plans and making killer presentations.

The incentives? The team with the most promising idea (as judged by Stein and a panel of internal and external judges) would win $5,000. There would also be a $2,000 second prize, and a third prize of $1,000.

On hackathon day in January, 2016, the 15 teams had until 6 p.m. to finalize a prototype and hammer out a business plan. MHS supplied food and colour-coded team T-shirts, creating a festive atmosphere. Participants were laughing, sweating, debating and tweeting – so much so that competitors started noticing. For 2017, MHS had to say no to tweets that gave too much away.

All teams presented to the judging panel on the following Friday. Each team was allowed a five-minute presentation, followed by five minutes for answering questions. Stein was thrilled by the winning ideas: an inexpensive “candidate competencies” test for employers to help MHS hack its way into a highly lucrative market; a mobile “early warning” solution that let psychologists share with patients (or their parents) preliminary test results in minutes instead of weeks; and the identification of new markets for some of the firm’s underused mental-health surveys through sales to the insurance industry.

Stein said some of these ideas might have daunted the team prior to the hackathon. “But now these guys have mapped them out. They said: ‘We can do it. Here’s how.’ ”

The next step was for the implementation team to review the finalists’ ideas and adopt the most promising projects. For now, MHS is funding this project through unbudgeted foreign-exchange gains; Stein hopes the group will start paying its way before the Canadian dollar turns up again.

The innovation hub – two psychologists, two programmers and a UX person – fine-tuned initial prototypes for hand-off to sales, which arranged pilot programs with real customers. The team set itself quarterly goals to ensure it was doing its job; in innovation, knowing what to stop working on is just as important as spotting winners.

“Over all, there are eight or nine projects we’re moving ahead with,” Stein said. With two hackathons now under his belt, a pipeline of new projects and a re-engaged work force, he said the whole process has been a winner. “It’s turned us from a disruptee to a disruptor.”

Ken Tencer is chief executive officer of design-driven strategy firmSpyder Works Inc.and the co-author of two books on innovation, including the bestsellerCause a Disturbance.He holds the Institute of Corporate Directors certification (ICD.D).Follow him on Twitter at@90percentRule.